1998 annual report
Inditex Group
1998 annual report
1. Chairman’s statement
5
2. international presence
9
3. financial highlights
13
4. general information
21
Inditex Group Zara Pull & Bear Massimo Dutti Bershka
1. Chairman’s statement
1998 annual report 3
It gives me great pleasure to present the Annual Report of the INDITEX Group for the FY 1998. The desire for innovation and constant improvement with which we began this project 36 years ago is the motivating idea which has guided us up to the present time. Now we have the privilege of seeing how this original idea, from which many others, with an open and creative mind, have emerged and continue to emerge, has converted itself into the INDITEX Group. This desire for innovation leads us to approach 21st century society with a vision of the future which, with its basis in the diversity of components and scenarios forming our company, continues to drive us to face the challenges of the ever-more global society of which we are a part. We must be aware that the experience we have gained is not enough to guarantee our leadership. We must also be faithful to the commitment to effort and improvement which inspires our company. More than 12.000 people from many different countries currently make up our Group. This diversity is synonymous with open-mindedness and flexibility, and pushes us to continue evolving, with enthusiasm and perseverance, towards new projects. This report transmits a vision of the realities and the projects of the INDITEX Group and our capacity to adapt ourselves to the demands of our environment in the widest sense. We have to be aware of the challenges that our Group faces. International expansion, carried our both independently and through agreements with other companies, is the objective that cannot be delayed and will allow us, through diversity, to enrich our culture and vision of the market. The creation of new chains and the widening of our product ranges is our response to the new opportunities of the environment. In short, the idea of innovation and constant improvement, which I mentioned before, must keep on being the motivating idea of our Group throughout the 21st century. Finally, I would like to express my appreciation to all the people who work in the INDITEX Group and who through their dedication, enthusiasm and sacrifice, make the attainment of new goals possible every day.
Chairman
1998 annual report 4
2. international presence
1998 annual report 5
Inditex Group A whole world to dress Norway MD
1
Sweden MD 6 U.K. Zara 1
Belgium Zara 12 P&B 1 MD 4 USA Zara 7
Greece Zara 13 P&B 4 Turkey Zara 2 MD 1
Spain Zara 203 P&B 143 MD 110 BSK 32
Mexico Zara 18 MD 7
Portugal Zara 29 P&B 27 MD 25 BSK 6
Venezuela
Zara
Japan Zara 1 P&B 9
China P&B 1
Malta P&B 1
Dubai MD 1
1 Number of shops (31st January 1999)
France Zara 55
Kuwait Zara 1
Israel Zara 5 P&B 11
Argentina
Zara
4
Lebanon Zara 1
Cyprus Zara 1 P&B 1 MD 1 BSK 1
1998 annual report 6
3. financial highlights
1998 annual report 7
1998
Monetary Amounts in Million Pesetas (ESP) 1997 1996 1995 1994
GR 1998/1997
CAGR 1998 -1994
REVENUES Net revenues
268,665 202,565
167,795
143,617
125,815
33%
21%
Net sales in owned stores and franchises (VAT excl.)
253,818 191,020
155,882
133,969
117,305
33%
21%
Percentage of net sales abroad
46%
42%
36%
30%
25%
EBIT Consolidated income before taxes Consolidated net income for the year
39,098 38,100 25,440
30,395 29,583 19,564
24,366 18,657 12,131
21,347 15,387 9,155
18,057 14,092 8,713
29% 29% 30%
21% 28% 31%
Income atributable to the controlling company
25,480
19,532
12,102
9,093
8,539
30%
31%
EBITDA Cash - flow
54,184 40,473
42,196 30,535
37,161 21,481
29,239 19,114
23,371 14,427
28% 33%
23% 29%
112,040 15,477 -8,625
88,169 6,382 315
69,031 16,363 -6,724
51,241 13,742 -11,450
42,276 14,788 -11,195
27% 143% -8,940
28% 1%
PREOFITS & CASH-FLOW
FINANCIAL STRUCTURE Shareholders’ investment Net financial debt Working capital Financial
10,535
15,267
3,938
-159
581
-4,732
-19,160
-14,952
-10,662
-11,291
-11,776
-4,208
Total investment in fixed assets Number of stores In Spain
46,091 748 489
21,400 622 433
19,200 541 399
25,802 508 391
28,000 424 343
115% 126 56
13% 81 37
Abroad Average number of employees (*) In Spain Abroad
259 11,968 7,637 4,331
189 8,368 5,857 2,511
142 6,463 4,573 1,891
117 5,627 4,158 1,469
81 5,018 n/d n/d
70 3,600 1,780 1,820
45 1,737 1,909 1,083
327,490 261,372 193,614 163,767
233,374 151,653
209,918 144,348
184,279 136,638
66,118 29,847
35,803 14,244
36,271
21,559
Non financial OTHER INFORMATION
Average full time equivalents (*) Sales surface in square metres (sqm) In Spain Abroad
133,876
97,605
81,721
65,570
47,641
Average sales per square metre
0,78
0,73
0,67
0,64
0,64
Inventory turnover (purchases / average stocks) EBT on store sales
6,77 15%
7,31 15%
7,24 12%
8,21 11%
8,97 12%
Net profit on store sales Operating profit on store sales
10% 21%
10% 22%
8% 22%
7% 20%
7% 18%
Net debt on equity ROE (income attibutable on average shareholders’ invest.)
14% 25%
7% 25%
24% 20%
27% 19%
35% 22%
ROCE (EBIT over average capital employed) Cash - flow on net financial debt Cash - flow on net interest expenses
35% 3,50 54
34% 6,61 42
32% 2,27 37
35% 2,13 29
38% 1,58 23
2,0
1,8
2,0
2,3
2,5
MANAGEMENT RATIOS
FINANCIAL RATIOS
Net gearing (assets on equity)
1998 annual report 8
growth 1998
25.440
1998 40.473
1997
19.564
1997
30.535
1996
12.131
1996
21.481
revenues in millions
net profits
1996
167.795
1997
202.565
1998
268.665
In the fiscal year 1998 the Inditex Group has achieved revenues of Pta. 268,665 million, a 33% increase on the previous year. Net profit (Pta 25,480 milion) and funds from operations (Pta 40,473 million) increased by 30% and 33% respectively, on the previous year.
1998 annual report 9
Cash-flow in millions
in millions
The different chains of the Inditex Group (ZARA, Massimo Dutti, Pull & Bear and Bershka) have maintained a strong rate of growth, with 125 store openings. The number of stores by FYE1998 was 748. In 1998 a new chain was launched, Bershka, focussed on trendy fashion for the urban young girl. By FYE1998 Bershka had 40 stores in Spain, Portugal and Cyprus. In 1999 it will reach a total of 69 stores.
1998 annual report 10
international expansion 1998
46.091
1997
21.400
1996
19.200
total investmentsin fixed assets in million
international business accounted for 46% of the total turnover in FY1998, versus 42% in the previous year
At the end of 1998 the Inditex Group was present in 21 countries. During that period it increased its international presence by opening new markets such as UK, Japan, Argentina, Venezuela, Kuwait, Lebanon, Turkey and Dubai. The following is worth of mention: the opening of a flagship ZARA store in London (Regent Street, 1,800 sq. m.) meant the entr y in the UK market. A second store was opened in March 1999 in Bluewater (Kent). The opening of the first store in Asia, located in the Shibuya district in Tokyo, took place as part of an agreement with the Bigi Group for the Japanese market. This store will be followed by more in Osaka.
1998 annual report 11
by FYE1999 international business will represent over 50% of the total turnover 1998
112.040
1997
88.169
1996
69.031
shareholder's investment in million pesetas
During 1999 new markets have been entered such as Chile and Uruguay. In the rest of the year stores will be opened in Canada, Germany, Poland, Brazil, Saudi Arabia, UAE and Bahrain, expanding the Inditex Group’s international presence to 30 countries. The entry of the Inditex Group into Germany, the biggest European market, through a joint-venture agreement with the Otto Versand Group
the Inditex Group has consolidated a presence in the biggest markets in the world and is well-positioned to maintain high growth rates in its activities in the coming years.
will mean the opening of ZARA stores in Cologne and Hamburg before the end of the year. The entry into Brazil, the biggest retail market in Latin America, with four ZARA shops by the end of 1999 will mean the consolidation of the Inditex Group in the main markets of this area. The entry into Canada will also take place with stores in prime commercial areas in Toronto, Montreal and Vancouver by the end of 1999, through an agreement with The Reitmans Group. 1998 annual report 12
4. general information
1998 annual report 13
Inditex Group
The Inditex Group is the development of a special idea about fashion and business management which started i n L a C o r u ñ a i n t h e e a r l y 6 0 ’s w i t h a t e a m led by Mr. Amancio Ortega Gaona. From its beginning, several features have stood out and become the basis for the Group’s national and international expansion: creativity, painstaking design, innovation, fast response to the market, special attention paid to the interior design of the shops and flexible management.
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an idea about fashion associated with an integrated structure
The Inditex Group covers a great part of the production process. It is an organisation in which design, production, supply, distribution, sales and management complement each other with precision. Creativity and efficiency go hand in hand so that its success in its design of collections is accompanied by an appropriate management system. Inditex is a fashion concept linked to a large management structure.
1998 annual report 15
flexibility
fashion in the Inditex Group is interactive
The distinctive stamp of the Inditex Group is its flexibility. IIts working philosophy, enthusiasm. Throughout this long production process, which begins in the design department and ends in the shop windows, there are no rigid structures but rather working centres and decision-making bodies which are absolutely adaptable to the changing conditions of the market and, which are driven by endless enthusiasm and creativity.
1998 annual report 16
enthusiasm
1995
5.627
1996
6.463
average number of employees Persons/year.
1997
8.368
1998
11.968
People are the energy that moves the Inditex Group and it is precisely in those 12.000 employees, distributed in different tasks, that the heart of the company beats. A team which promotes the enterprising spirit, professionalism, involvement and enthusiasm of the people who make it up. Thanks to them, it is a reality.
1998 annual report 17
creativity
we establish communication with the client not only through the garments but also through our shops
The client is the base that supports the strength of the Group. Knowing their desires, responding promptly, maintaining a constant dialogue with them in those meeting points which are the shops; here we have the pivots upon which Fashion rests. The public is both the origin and the destination of the long journey travelled by a garment from the moment it is born in the designer’s imagination till it is offered in the shop.
1998 annual report 18
the motivating idea of the Inditex Group is to bring fashion closer to people
1996
233.374
1997
261.372 total sales area Sq. Metres
1998
327.490
The Inditex Group adapts itself to the complexity of the markets by diversifying i t s o f f e r, c r e a t i n g a n d i n c o r p o r a t i n g different chains each with its own personality and strategies: ZARA, Massimo Dutti, Pull&Bear, Bershka.
1998 annual report 20
innovation
in contrast to the idea of fashion as a privilege we propose a fashion that invades the street and that takes inspiration from the taste, desires and lifestyle of modern men and women.
1998 annual report 21
1998 annual report 23
dressing ideas, trends and tastes
ZARA represents the first step in the development of this special idea about fashion and business management, which began when the first shop was opened in La Coru単a in 1975.
after 24 years, the ZARA concept is now present in 16 countries with a network of more than 350 shops. The conviction that frontiers will not prevent the sharing of the same clothing culture is the main principal of the expansion process in progress which, although adapting itself to the peculiarities of each country, has common guidelines such as privileged locations in the main cities, and exquisite care of the facades, shop windows and interior design.
1998 annual report 25
In ZARA, design is understood as a process closely linked to the client through a continual flow of information arriving from our shops, which capture, process and transmit the worries and demands of customers to a team of more than 200 professionals.
This process, backed up by 25 manufacturing companies and advanced technologies, allows us to respond to the demands of the market by creating more than 11.000 different designs a year. ZARA knows how to move in step with society, dressing those ideas, trends and tastes that this society has been thinking out. That is the reason for its success among people, cultures and generations who, in spite of their differences, share the same longing for a fashion for everyone in which the designer and the client walk hand in hand. Customer service is also reflected in the care given to the shops. The idea is that the public will feel comfortable, enjoy the environment provided and appreciate the clothes on display. The shops are designed to create a special atmosphere that makes the client feel the pleasure of shopping.
1998 annual report 26
1998 annual report 27
Pull&Bear
a lifestyle
1998 annual report 28
at the end of FY1998, and as a result of a continuous process of expansion, Pull & Bear has opened more than 200 shops in 9 countries.
The chain of fashion shops Pull & Bear was born in 1991, as a result of a strategy of market diversification begun by the Inditex Group. At that time, the public was demanding basic style fashion, influenced by international trends, a fashion which could also adapt quickly to their needs respecting three basic premises: fashion, price and quality. This is the combination that Pull & Bear offers to its clients as a higher added value.
1998 annual report 29
The Pull & Bear design team carries out rigorous research into fashion trends, fabrics design and the design of collection. The development and quality control of the samples result in the creation of new designs each season.
Pull & Bear has known how to respond to its clients’ demands and has continued evolving and growing in order to satisfy their new requirements: more sophisticated garments, more casual and urban fashion, a concept that enters strongly into fashion trends influenced by the technological advances in casual wear. A simple and pure appearance without superfluous elements (XDYE brand), womens’ fashion, perfumery products, accessories and even a range for home decoration (P&B Decoration), maintaining the highest standards of quality and the best prices. The philosophy of the business is very clear: the Pull & Bear shops offer what the client wants to buy at every moment.
1998 annual report 30
Massimo Dutti
functionality and design
Massimo Dutti was born in 1985 as a company dedicated to the commercialization of men’s clothing and accessories. However, in June 1995, based on the success achieved by this format, it was decided to increase its offer and create the women’s line Massimo Dutti Woman. Massimo Dutti, has more than 150 shops located in nine countries. The success of the brand is the result of a universal design that crosses frontiers in order to connect with the urban, independent and cosmopolitan men and women of today.
1998 annual report 32
Massimo Dutti makes it easier to interpret the different roles played by men and women in our society. It presents complete ranges, from the most urban style to casual wear, an expression of comfort and adaptability. Massimo Dutti garments adapt to any kind of situation, it just takes the right accessories. Handbags, sunglasses, scarfs, ties, shoes and an endless number of Massimo Dutti accessories which are at the ser vice of the clients let them decide the image they want to present, from the most sober and practical for the day to the most sophisticated and elegant for the evening. Furthermore, a new line of home furnishing accessories has been introduced, “Detalles�. Basic traditional styles, updated by new generation fabrics, but always practical, pleasant and of quality, discreet textures, 100% natural fabrics and innovative mixtures offer as a result an impeccable image with the guarantee of maximum comfort. A cared style which is coherent with the sobriety, elegance and minimalism that characterises the Massimo Dutti collections.
1998 annual report 33
sobriety, quality and confort
1998 annual report 34
Bershka
Bershka was born in April 1998 and represents a new concept both of shops and of fashion,
more than a product an attitude
maintaining the Group philosophy of keeping sensitive to the people’s tastes and responding quickly to their demands. In this, its first FY, Bershka has opened about 40 shops in Spain and Portugal. These shops represent the first step in its expansion project.
1998 annual report 36
Bershka shops are big, spacious and with the wish to be a meeting point for fashion, music and street art. At the entrance, the logo “meeting point”, taken from airports, stress the intention of creating ultra modern environments where young people can feel in their own space. Big pictures on the walls, advertising photos so enlarged as to seem to be wall paper, as well original graffiti on uncovered walls of brick, metal or design. You can watch videos, listen to the latest CDs , buy drinks, read magazines... It is a store where the experience of buying fashion becomes a sociocultural immersion in the aesthetic of the “youth culture” of the end of the century.
1998 annual report 37
modern, urban and fun environment
More than a product it is an idea, an attitude. Stepping into a BERSHKA shop is like jumping deep into the urban, fun and ultra modern ambience with a unique look and affordable prices. There is also a big and ever changing range of shoes, bags, belts, sunglasses, watches, lipsticks, nail polish,... All of them with the radical BERSHKA style.
1998 annual report 38